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Chapter 19 - Formation and Terms of Sales Contracts
19-1
CHAPTER 19
FORMATION AND TERMS OF SALES CONTRACTS
I. OBJECTIVES:
terms provided by the Code. After reading the chapter and attending class, a student should be
able to:
2. Recall the major provisions of the Code that are applicable to the formation of contracts for
the sale of goods, including the “gap fillers” that the Code deems part of the contract when
the parties omit critical terms of state them in an unclear manner.
3. Explain when title to goods passes from the seller to the buyer.
goods than the seller had.
5. Apply the Code’s rules concerning risk of loss to determine who had the risk of loss in a
before the buyer took possession.
6. Distinguish between sale or return and sales on approval and explain the ramifications those
distinctions have for the rights of buyers and sellers.
II. ANSWER TO INTRODUCTORY PROBLEM
A. The first question following the hypothetical that appears at the beginning of the chapter asks
frauds requirement. See Cyberlaw in Action: Electronic Writings and the Statute of Frauds
(page 533).
B. The second question asks whether the buyer or the seller of the bicycle had the risk of loss
when it was damaged during shipment. Where the seller has not agreed to deliver the goods
case, the risk of loss might have remained with Trek.
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C. The third question asks whether the owner of a bicycle that had been entrusted to a bicycle
shop for repairs and was then sold by mistake to another customer could recover the bicycle
conversion against the bicycle shop.
D. The fourth question asks whether despite the fact that Melissa and her boyfriend have the
right to keep the bicycle, the ethically preferable thing to do would be to return the bicycle to
that was unique or had particular sentimental value to the entruster. The Ethics in Action box
on page 516 involving an heirloom diamond ring raises this consideration.
III. SUGGESTIONS FOR LECTURE PREPARATION:
A. Introduction
1. Purpose of Article 2 of the Code. Set the stage for the discussion of the law of sales by
parties to a commercial transaction.
2. Coverage of Article 2. Explain when Article 2 applies to a commercial transaction,
noting that when Article 2 does not apply, the law of contracts does apply. Ask the
d. Retaining an accountant to provide tax counseling. (Contract law)
e. Problem Case #1. (Contract law).
services, the contract was predominantly one for services and thus the implied warranties
under the UCC were inapplicable.
3. Note that some of the Code provisions apply only to merchants or to transactions between
commercially reasonable behavior.
Chapter 19 - Formation and Terms of Sales Contracts
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4. Formation of Contracts. Review the rules concerning offer and acceptance of sales
formation.
5. Review initially the rules concerning offer and acceptance of sales. Note that a contract
for the sale of goods is created despite the omission of other terms if the subject matter
when they have a reasonable expectation that a binding commitment exists.
Noble Roman’s, Inc. v. Pizza Boxes, Inc. (page 534) Where a confirmatory writing
against the requirements contract. The buyer was not, therefore, liable for boxes for
which purchase orders were not submitted.
C. Title
2. When Title Passes. Explain when title passes, the historical importance of that
determination, and the decreased importance of when title passes under present law.
contracts were deemed to be “shipment” contracts. Accordingly, the “sale” occurred in
Massachusetts and did not violate a Connecticut law against ticket scalping.
Additional Example: Problem Case #2.
D. Title and Third Parties.
First, state the general rule that a person can convey no greater title than that held by him or
1. Ted steals a television from Valerie. Ted sells the TV to Robert's Used TV Sales, which
of business. (Valerie).
2. Mark takes his stereo to Stan's Stereo Store for repair work. Stan's negligently puts the
purchases the stereo. (Calvin)
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3. Same as #2, except that Stan's sells the stereo to Helen's Hi-Fi Store. (Mark).
Discuss the difference between a void and a voidable title.
Tempur-Pedic International, Inc. v. Waste to Charity, Inc. (page 539). Where a
manufacturer of mattresses made a donation of mattresses to a charity for the purpose of
of the manufacturer’s claim to them.
Points for Discussion: Note the factors the court pointed to in concluding that the
Is there anything else the manufacturer might have done to better assure the donated
products were handled consistently with the donation?
Additional Examples: Problem Cases #3 and #4.
circumstances of the sale and the special meaning it has for the entruster.
E. Risk of Loss
1. Explain the importance of risk of loss and point out that risk of loss does not always pass
from the seller to the buyer when title passes. You should carefully define the various
Capshaw v. Hickman (page 543). Under the UCC, the question of ownership and
passage of title is no longer determinative of risk of loss. Rather, risk of loss passes to
the buyer on tender of delivery where, as here, the seller is not a merchant. Thus the
conclusion in this case turns on whether there has been a “tender of delivery.”
understanding of these three concepts.
a. Problem Case #5.
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4. The Global Business Environment: Risk of Loss in International Sales (page 545): Note
the four categories of widely used international shipping terms that are set forth in the
on Contracts for International Sale of Goods (CISG).
F. Sales on Trial
1. Develop the differences between a sale on approval, and a sale on return as to (1) how
they originate, (2) where risk of loss lies between the seller and the buyer and (3) what
file a financing statement and to post notice of the consignment to protect its title in the
goods.
IV. RECOMMENDED REFERENCES:
A. James Brook, Sales and Leases: Examples and Explanations (5th edition), Aspen Law &
class and exams.
B. Clayton Gillette and Steven Walt, Sales Law: Domestic and International (Concepts and
Insights), Foundation Press, 2008. An excellent summary of both UCC and international law
of sale of goods.
C. James J. White & Robert S. Summers, Handbook of the Law Under the Uniform Commercial
studies ambiguities in the Code.
D. Uniform Commercial Code Reporting Service, Chicago, Callaghan & Co. A complete Code
service including the Code and variations made by adopting states. This service publishes
many of the Code cases, which are easily accessed through the service's indexing system.
V. ANSWERS TO PROBLEMS AND PROBLEM CASES:
transaction involving the sale of goods and is not controlled by the UCC. Here, the
predominant element of the contract was the furnishing of a service, and Star coach was in
the business of performing labor, not selling parts. Moreover, Heart of Dodge’s complaints
had to do with Star Coach’s workmanship. Accordingly, the trial court erred in applying the
(Ct. App. Ga. 2002).
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title passed to Clouser at the time of the contracting. Transamerica has confused title with
risk of loss. Russell still had the risk of loss because he retained possession of the boat. Title,
however, had already passed to Clouser. Russell v. Transamerica Insurance Co., 322
N.W.2d 178 (Ct. App. Mich. 1982).
punishable as larcenous under the criminal law. Here, Bradley obtained the goods through a
voluntary transfer of possession described as a “consignment”—and not through any
wrongful non-permissive taking of the goods. As such, Bradley was a purchaser of the
goods—albeit with voidable title to them—and was empowered by the transaction with
5. No. Under 2-509 of the Code, the risk of loss passes to the buyer from a merchant on the
unlocked garage in a house under construction, and then locking the door, did not give
6. Yes. Where the seller is a merchant dealing in goods of the kind sold, the risk of loss passes
Sports Center, 409 N.Y.S.2d 505 (Civ. Ct. N.Y.C. 1978).
7. Yes. Where no shipment of the goods or holding of the goods by a bailee is involved, if the
seller is not a merchant, the risk of loss passes to the buyer on tender of delivery. The risk of
loss does not turn on who is the title holder. Here there was no effective tender of delivery.
Putrell had not removed the items from either the mobile home or the shed that she was
home only for a specific, limited reason. From the point in time that title was transferred and
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the keys given to Burnett, delivery was tendered and only a bailment for personal property
existed. Burnett v. Putrell, 1992 Ohio App. Lexis 3467.
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VI. ONLINE RESEARCH: USING THE INTERNET TO BUY A COMPUTER
4) Click on model “Z series 14Z”
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